E-commerce is growing exponentially and online retail is booming across the world led by economies of the Asia Pacific. The air cargo industry is already seeing signs of huge opportunity here and it is only going to be bigger in the coming years. Reji John...
E-commerce is one of the fastest growing segments in the world and will remain so in the coming years. According to research done by eMarketer, the global B2C e-commerce sector will hit $2.3 trillion by 2017. Due to the nature of e-commerce where customers often demand to receive their online purchases in the shortest possible time, it presents huge opportunities for the logistics industry, particularly the air cargo sector, because air freight is usually the preferred shipping option.
E-commerce is also redefining the last-mile distribution, especially for postal service providers and the integrators. Freight forwarders are increasingly involved in the e-commerce supply chain process by providing e-retailers with warehousing, order processing and international freight forwarding services. There are also opportunities for logistics services providers to provide contract logistics services to e-retailers that require customised solutions for their complex supply chains.
Although freight forwarders are traditionally not set up to provide e-commerce solutions, they are playing a part in this online revolution by providing services such as warehousing and contract logistics services in certain areas.
While China led the e-commerce charge in Asia – both as a manufacturing centre to support western demand and also in the growth of domestic demand – the torch is being carried by Vietnam and other Southeast Asian countries, often at China’s expense. Perhaps it’s time for China, and the rest of the logistics industry, to sit up and take notice.
When asked his thoughts on e-commerce in 1996, Steve Jobs, then chief executive of Apple simply said, “It is going to be huge.” There is no doubt that today e-commerce is huge and with it, the logistics needed to keep it going.
Estimated at over €140 billion, e-commerce logistics is rapidly changing to try to keep pace with this quickly evolving e-commerce market. What is unique about e-commerce, e-retail and e-commerce logistics is that there is tremendous amount of experiments related to business models, payments and delivery methods. From free shipping to crowd-sourced shipping the industry is evolving so rapidly than anyone can imagine. There is no doubt that it offers unprecedented market size.
The e-commerce battle in India is being fought on many fronts. Discounts, personalization, onboarding sellers, and so on. But the real race is in logistics. The winner will be the one who gives consistently better experiences to both buyers and sellers – with efficient warehousing, smart inventory management, and most of all, faster delivery.
Amazon India, the multinational behemoth in this space announced seven new fulfilment centers (FCs) or warehouses in India. Amazon now has 20 FCs across 10 Indian states, covering an area of over 1.6 million square feet with a storage capacity of nearly four million cubic feet. What these FCs do is bring warehousing closer to sellers, and therefore, their goods closer to buyers. Transport is a huge bottleneck in India. So, right from June 2013 when it entered India, Amazon began investing in infrastructure to tackle the problem.
Amazon was forced to adopt a 100 percent open marketplace in India because of restrictions on foreign direct investment (FDI) in online retail. Its Indian e-commerce rivals Flipkart and Snapdeal also adopted the marketplace model which has proved to be a big factor in scaling up fast. Last year, Amazon founder Jeff Bezos visited India and wrote a $2 billion check for the firm’s local arm. A big portion of that is going into the warehousing infrastructure which is a vital puzzle piece in the overall Amazon strategy.
“Sellers on our marketplace have been witnessing exponential growth largely powered by our Fulfilled by Amazon service contributing more than 75 percent of total units,” says Amit Agarwal, VP and country manager of Amazon India.
E-commerce sales in Asia are going up; the latest stats indicate that nearly 42 percent of the entire world’s internet users live in Asia. More than more and more people are using smartphones and smart mobile devices to buy goods online. Given these stats, it’s no wonder that a large percentage of the global B2C e-commerce sales comes from the Asia-Pacific sector. The percentages will only go up, even as smart device technologies improve.
There is huge potential for airlines in the transport of e-commerce products.
In a recent media report, Mark Whitehead, CEO of Hong Kong Air Cargo Terminals (Hactl), Hong Kong International Airport’s top ground handler, was quoted saying that the e-commerce is an exciting business and he thinks that there is a role to play for cargo carriers and Hactl in this ever-developing market. “Everybody is coming to terms with e-commerce as a huge market and what it potentially is going to become," Whitehead was quoted in the report. He added that the focus of the industry is always shifting and one of the big things at the moment is the rapidly developing sector of e-commerce, so Hactl is actively looking at opportunities to handle more and more e-commerce products.
China has been the undisputable leader in e-commerce and the Chinese e-commerce industry lead by several of its local e-commerce giants, particularly by the now global giant and Nasdaq-listed Alibaba. With the Chinese and other markets opening up to become consumers of global brands and products and the ability of e-tailers to sell globally, instead of just on their own high street, the opportunity is huge for global air cargo carriers. This opens up cargo volume, particularly of high-value items, moving across borders from manufacturing hubs to distribution centres spread across distant markets.
E-commerce in Europe continued to grow significantly last year. The actual growth rate of B2C ecommerce of goods and services in Europe amounted to 13.9 percent in 2014, reaching 426.8 billion Euros. Europe is still the second-biggest e-commerce region in the world. Only Asia-Pacific has a bigger e-commerce industry.
That’s one of the main conclusions from the new Global B2C E-commerce Report 2015, which is created by the Ecommerce Foundation. This pan-European online retail association found out that last year, 2.64 percent of the world’s GDP was spent on purchasing goods and services online.
For now, it doesn’t look like Europe will be the number one shortly. In the more developed regions of Europe, around 75 percent of the population is connected to the internet, whereas in Asia-Pacific only 39 percent is able to shop online. “In combination with the increasing income per capita and improving retail infrastructure, Asia-Pacific’s B2C ecommerce turnover is expected to rise even more strongly in the near future,” Ecommerce Foundation predicts.
Taking advantage of the rising e-commerce market China Southern Airlines recently launched a freighter service linking Guangzhou with Ho Chi Minh City and the Vietnamese capital Hanoi. The freighter service will operate four times a week, using Boeing-747Fs. A China Southern spokesman said that cargo will mainly consist of shoes, clothes, fruits and vegetables. It is the carrier’s first freighter service to Vietnam.
In another development, China Southern has introduced its cross-border e-commerce platform - Southern Cross-Border Purchase through which customers can purchase goods on-line in overseas markets, including the US, Japan, Australia and New Zealand and ship them on the carrier’s global network to China.
Since January 2015, China Southern’s cargo department has been working with cross-border e-commerce operators and overseas producers and suppliers to create B2C procedures and develop transport channels. Currently, its cross-border e-commerce business covers 13 international destinations, including among others Los Angeles, Vancouver, New York, Auckland, Tokyo and Frankfurt. In January-July 2015, China Southern carried more than 1,500 tonnes of cross-border packages.
Talking about how seriously 3PL players can dig into the e-commerce logistics, Eddie Sng, Executive Director of Agility International Logistics said e-commerce presents opportunities for warehousing and other value-added services and according to him Agility is already providing these services to some of its current clients.
“Agility operates a strong global network with logistic experts who are able to deliver tailored solutions around the globe. We offer innovative solutions that meet the unique needs of each customer. The needs of the booming e-commerce business are no exception. Agility will continue to re-engineer supply chains to help our customers manage complexity and risk, improve visibility and control, tap into growing consumer markets and adapt to the e-commerce boom that is changing the shopping experience and blurring lines between in-store and online retail,” said Eddie Sng.
Last month a new cargo airline was set up by Okay Airlines (OKAIR), Air Transport Services Group (ATSG), Vipshop and other investors plans to cater to China’s express and e-commerce business. Called United Star Express Airlines, the new cargo carrier will serve multiple destinations within the Peoples Republic of China (including Hong Kong, Macau and Taiwan) and surrounding countries.
The ATSG statement added: “The new airline will principally serve rapidly growing express air cargo demand driven by e-commerce growth in China and surrounding countries,” said an official statement from ATSG. The joint venture estimates that the express air services in China now rely mostly on excess capacity in the belly of passenger aircraft. Fewer than 120 all-cargo freighters operate within China, and only a small portion of those serve express markets.
“The growth rate of China’s e-commerce markets exceeds that of the air express market. Therefore, United Star Express will provide third-party express and charter aircraft services that cover the country and surrounding Asia regions to domestic and international express companies. Gradually, the company will also add medium- and long-distance cross-border express and cargo charter services that cover Europe and the America regions,” said a statement from the joint venture partners.
"The international cargo market is not good at the moment but the Chinese domestic market is good, especially the express market that is growing at 40 percent every year. We project demand for medium widebody freighters to pick up in China, so we believe it is a good time to enter the market,” said Richard Corrado, chief commercial officer, ATSG.
Earlier this year Alibaba made a strategic investment in Chinese logistics company YTO Express to help both businesses improve logistics efficiency for their customers. YTO Express is one of 14 logistics partners that work closely with Cainiao, the logistics affiliate of Alibaba Group. Cainiao and YTO Express will work together to enhance the industry’s logistics management capabilities and international and rural delivery services. This will in turn raise the bar on service quality and user experience for merchants, consumers and logistics companies. The Hangzhou-based airline is hoping to capitalise on the growth of e-commerce and express delivery in China and the neighbouring countries. YTO Express becomes the third Chinese express company to also own and operate an airline, joining China Post and SF Express.
Talking about the biggest challenge for logistics companies in this space Eddie Sng said, “Sourcing has become increasingly complex for many of our global customers as the raw material, components and packaging are often manufactured in various locations around the world. To make it easier for our customers, Agility manages the supply chain from handling the raw materials to storing the products in a warehouse and fulfilling orders. We also provide a regular flow of information on the status of their products and shipments at the local and international level so they have complete visibility of their supply chain.”
Dubai-based Mara Group is launching an Africa-wide online marketplace that it hopes will become the leading e-commerce business in Africa within less than four years. Ashish Thakkar, founder of Mara Group and the executive chairman of the new venture, describes it as “a marketplace for global brands to plug into to sell locally in Africa, and for local brands to sell nationally, regionally and globally.” Called Mara Sokoni, the platform is scheduled to launch in 10 countries, including Nigeria and Kenya, early in 2016.
The potential market for e-commerce in Africa is huge, according to McKinsey. In its November 2013 study on the potential growth of internet use in Africa, the consultant suggested online retail sales across the continent could reach $75 billion by 2025.